The End of The Billable Hour
Let’s be really honest about something: tracking everything you do down to 10-minute increments isn’t enjoyable. Regardless of how much you are paid per minute, it’s still not fun for you, and certainly not for your clients. Billing by the hour was always prelexing to me when I was practicing in a traditional law firm. Whenever a client needed just one quick question answered, or needed to me some details over email, it didn’t feel right to charge them for every minute. In fact, it felt to me like the opposite of efficient and helpful. I love to use the term “misaligned incentives.”
Two years ago I started a legal practice that did away with the billable hour and charged clients a flat monthly fee. I’ve lost count of how many people who’ve told me this model couldn’t possibly work. Guess what? It has. And not just for me. This model works every day for attorneys and companies on the Auxana platform.
Here’s why I know the traditional billable hour needs to make way for monthly flat-fees.
It promotes efficiency and positive outcomes
Attorneys are taught, and encouraged, to bill as many hours as possible. In most law firms, associates are required to bill a minimum number of hours (ballpark 160) per month. They get bonused on the hours billed over their minimums. What this translates to is a focus on how much work an attorney can bill per client. Competitive types will create all manner of ways to bill more hours, from redlining a contract that didn’t it to requesting meetings that could easily have been emails. The kicker is, it often doesn’t matter if the work being billed isn’t results-producing or even necessary. It only needs to be justified.
This model is how law firms make money on (the backs of) their associates.
Under this traditional model, attorneys are so focused on time spent that they lose sight of the outcome for the client. Imagine if we allowed attorneys to take the intention off of time, and instead tasked them with being as efficient as possible to get the client the best outcome. They might not spend as much time redlining a contract to prove their worth, and might spend more time digging into the clients’ business goals.
This is what I refer to as intelligent use of resources. What this means to Auxana is that a legal service provider seeks the most efficient, economical, and productive solution for the client that helps them achieve their business goals. This is what takes legal from being a cost center, and turns it into being part of the growth engine.
It creates client loyalty
Clients rely heavily on their legal advisors. Most executives consider their law firm to be a partner, and also a pain when the unpredictable monthly invoices arrive. It makes it hard to win client loyalty when they’re constantly feeling squeezed. Today’s client is also much savvier than clients 10 years ago. Changing consumerism has led to clients expecting more from their attorneys than hours billed on work completed. They expect intelligent use of resources to help them solve their legal and business challenges.
For Auxana members, the creation of a strong, predictable business relationship means recurring revenue, predictability, and significant value both for the attorney and their clients.
Client loyalty soars when you align economic and business interests as a staple of the relationship.
It minimizes risk
We hear time and again that clients hesitate to call their attorneys when they have questions, or need advisement, because they know the meter is running. The fear, and reality, is that clients don’t address a seemingly innocuous thing to avoid the bill, only to discover later that it wasn’t so innocuous, and now will cost much, much more to clean up a mess that could have been prevented. For as much as we tout the “ounce of prevention” line to clients, they still weigh that against their budget. When costs are running high, what’s one less call to the law firm?
This is a terrible situation for clients to be in, as it opens them up to unnecessary risk. Giving clients the freedom to have a reasonable amount of advisement without breaking the bank, means significant risk mitigation.
The whole notion of toppling the apple cart in this way might be scaring you silly. You might believe it’s a great idea in theory, but could never equate to profitability. At first, it does feel that way. However, as the focus on client outcomes increases, you’ll be pleased to discover that both revenue and profit point up and to the right, while your stress and discouragement steadily declines. Attorneys who are less concerned about hours, and more concerned about client outcomes not only produce better, more creative work with less waste, but they show their clients that they truly do take the clients’ needs seriously.
Ready to move past the billable hour? Sign up today to learn more about becoming an Auxana Outsourced GC